Laughing at Laffer
Man it's been a long time. shrug - busy life. Anyway...
Recently I've been listening to people use the laffer curve to justify tax cuts. They're guilty of misunderstanding what the curve is saying, and it's such a pervasive misunderstanding that I'd like to make a general response.
Yes, the Laffer curve says that if you cut taxes you increase revenue. If you stop there, however, you're wrong. See, it is equally true to say that if you raise taxes you increase revenue.
Go look at the curve. As it goes right, it goes up, rounds out at the top, and goes down. The "going right" axis is the tax rate. The going up axis is revenues. What's not labelled is where the magic number is. What anyone trying to use the Laffer curve to justify cutting taxes to increase revenues must defend is the position that we are presently to the right of the peak.
Because if we're to the left, we decrease revenue.
Note, please, that this is government revenue. That gives us the ability to pay for things, which includes the ability to pay off our national debt.
So the next time someone uses the Laffer curve to justify cutting taxes, ask them to demonstrate we're to the right of the peak. And when they go "huh," laugh at Laffer. Then take a moment to teach them.
Recently I've been listening to people use the laffer curve to justify tax cuts. They're guilty of misunderstanding what the curve is saying, and it's such a pervasive misunderstanding that I'd like to make a general response.
Yes, the Laffer curve says that if you cut taxes you increase revenue. If you stop there, however, you're wrong. See, it is equally true to say that if you raise taxes you increase revenue.
Go look at the curve. As it goes right, it goes up, rounds out at the top, and goes down. The "going right" axis is the tax rate. The going up axis is revenues. What's not labelled is where the magic number is. What anyone trying to use the Laffer curve to justify cutting taxes to increase revenues must defend is the position that we are presently to the right of the peak.
Because if we're to the left, we decrease revenue.
Note, please, that this is government revenue. That gives us the ability to pay for things, which includes the ability to pay off our national debt.
So the next time someone uses the Laffer curve to justify cutting taxes, ask them to demonstrate we're to the right of the peak. And when they go "huh," laugh at Laffer. Then take a moment to teach them.
posted by Kirk at 1:25 PM
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